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Request for Equitable Adjustment (REA)

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Request for Equitable Adjustment (REA)

DAU GLOSSARY DEFINITION

Alternate Definition

Although the term “Request for Equitable Adjustment” (REA) is commonly mentioned within the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), the regulations do not provide a formal definition. However, the U.S. Court of Appeals cites a REA as “anything but a ‘routine request for payment.’ It is a remedy payable only when unforeseen or unintended circumstances, such as government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order, cause an increase in contract performance costs” (Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995).

General Information

REAs are typically used in contracting, but can apply to anyone involved with U.S. Government contracts. REAs are especially applicable to DoD acquisition programs, where contracting officers execute contracts of significant amounts to support those programs.
 
Since REAs are not routine payment requests, review and analysis is required to determine the difference between a “routine” and a “non-routine” request for payment. According to The Administration of Government Contracts (Administration of Government Contracts, Fourth Edition, by John Cibinic Jr., Ralph C. Nash, Jr., & James F. Nagle ©2006, CCH, pp. 1231-1255), routine requests for payment include “billing of the contract price for articles delivered or services rendered, billing for progress payments, and submitting a voucher for allowable costs or fee under a cost-reimbursement contract.” All other requests are non-routine. Details on non-routine payment requests:
 
“…all requests for price adjustment called for by contract clauses constitute non-routine requests—including a request for equitable adjustment for a constructive change…; a request for equitable adjustment for ordered changes…; a request for an equitable adjustment for a recognized differing site condition…; a claim for lost revenue…; a request for a contract rate adjustment to reflect wage and fringe benefit changes made by a contractor in accordance with a wage determination… In such cases, the contractor has the choice of submitting a request for equitable adjustment (“REA”) to the contracting officer –calling for a negotiated settlement—or of submitting a [Contract Disputes Act] claim requesting a contracting officer decision…”
 
Comparing and Contrasting REAs and Claims: REAs and claims can be used in similar terms only if referred to from a financial (non-legal) standpoint. For instance, both are used to execute an adjustment to a contract in terms of money, time, or other appropriate aspect of the contract. However, the terms are different from a legal standpoint (allowable costs, court jurisdiction, etc.). Claims involve legal implications and thus can significantly affect the outcome of a contract.
 
When a contractor encounters an “unforeseen or unintended change” in the contract requiring an equitable adjustment, they typically submit an REA that does not meet the definition of a claim pursuant to FAR clause 52.233-1. Alternately, they may choose to follow FAR 52.233-1. The decision as to which method the contractor shall proceed depends on their understanding of the situation, their company’s policies, and prior dealings in similar situations. Other considerations include whether the contractor desires to bill the U.S. Government for costs of preparing, submitting and negotiating their changes to the contract (allowed for REAs, but not for claims), or collect interest, attorney’s fees, etc. (allowed for claims, but not for REAs). Finally, the federal court system (e.g., U.S. Court of Federal Claims, etc.) has jurisdiction to hear claims, but not REAs (unless the REA has been converted to a claim). If the contractor’s plan includes pursuing legal action, a claim would be the more appropriate option than a REA.
 
Because of the stigma the term “claim” often carries (i.e., a document with legal recourse and potential consequences), a common practice by many contractors is to submit an REA first, seeking a satisfactory mutual agreement in equity, unless they know beforehand that such is unlikely. If the REA does not result in a favorable or timely settlement (e.g., is ignored by the contracting officer, etc.), the contractor would then submit a claim by complying with the requirements of FAR 52.233-1. Alternately, the REA may be turned into a claim by complying with FAR 52.233-1 (i.e., requesting the contracting officer provide a final decision, and providing the required written certification if over $100,000). There is no requirement to submit a REA before submitting a claim and, although most often the case, the matter does not have to be in dispute before tendering a claim to the U.S. Government.  
 
The following table contains most of the similarities and differences between a REA and a claim.
 

Attribute REA Only Claim
         Written demand or assertion X X
        Must be labeled as a “Request for Equitable…” or “Claim” Neither Neither
         By one of the contracting parties X X
         seeking, as a matter of right X X
         the payment of money in a sum certain, X X
         the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract (i.e., non-routine payment) X X
         seeking an equitable adjustment to one or more contract terms (e.g., under the “Changes” clauses; “Differing Site Conditions” clause; “Government Property” clause, etc.) due to unforeseen or unintended circumstance (i.e., non-routine payment) X X
         Requires claim certification (see FAR 52.233-1) if amount claimed (aggregate, not net) exceeds $100K NO X
         Requires REA certification (see DFARS 52.243-7002) if amount requested exceeds the SAT X NO
         Requirement for Contracting Officer to render a decision within specific statutory deadlines if claim exceeds $100K; or if less than $100K and the contractor requests a decision in writing NO X
         Costs of accounting, negotiation expenses, preparation, legal and other costs related to the request/claim allowable if reasonable and allocable X NO
         Interest paid as part of settlement NO X
         U.S. Court of Federal Claims Jurisdiction/litigation NO X
         Requires a matter to be in dispute first Neither Neither
         Includes routine requests for payment (e.g., invoices, vouchers, progress payments, etc.) Neither Neither

 
DoD contracting personnel shall follow this “general” process when receiving an REA, claim, or any other non-routine written request asking for an adjustment to a contract:
 

  • First, determine if the request meets the definition and standards of a claim in accordance with FAR 52.233-1, regardless of what it’s referred to in the document.
  • If it meets the standards of a claim, then you must process it as a claim regardless of how the contractor is referring to it.
  • If it does not meet the standards of a claim found in FAR 52.233-1:
    • If the contractor has called it a “claim” (or there is some other reason to believe the contractor intends it to be a claim under FAR 52.233-1), reply immediately to the contractor pointing out the item(s) preventing it from being considered a claim, and work with them for further resolution, encouraging non-legal recourse if possible.
    • If the contractor has called it by some other name (e.g., “request for adjustment”, “request for consideration”, etc.), it is more than likely an REA and should be treated as such.

 

It is crucial for contracting officers to recognize the differences between a REA and a claim so that they can act accordingly. The process and final outcome(s) ultimately impact the entire DoD acquisition program, including personnel from various functional areas.